All posts tagged Pensions

Germany’s new demographics report last Wednesday doesn’t leave much room for optimism. Not only will Germany’s population shrink by up to 21% in the coming 50 years, but thanks to higher life expectancy and a persistently low birth rate, every third person living in the country will be 65 or older in 2060.

In view of the challenges this presents for public finances, far-reaching reforms are needed for the country, economists keep repeating.

Germany has one of the lowest birth rates and the highest over-60 population in Europe, and is heading towards a dramatic rise in debt if it doesn’t act, they say.

Yet, as in many other European countries, there is strong resistance to the prospect of working longer. In 2007, the German parliament raised the retirement age from 65 to 67, with the hope that keeping people in jobs longer would ease the burden on the pension fund.

At the time, the decision was criticized by trade unions and opposition politicians who argued it would lead to higher unemployment and increased old-age poverty.

Other countries have been more vehement in their resistance to change.

The Bank of England, whose preferred measure of inflation is being forced on many U.K. pension schemes, leading to cuts of up to 20% in their payments, is continuing to use the previous higher rate of inflation for its own pension fund.

Last summer, the U.K. government said it wants pension funds to pay out benefits in line with rises in the consumer prices index, instead of the retail prices index as before.

RPI tends to rise by about 0.7 percentage points a year more than CPI.

Explaining the change, pensions minister Steve Webb said CPI was a more appropriate measure of inflation for pensioners, as it excludes housing costs.

He said: “CPI is also the Bank of England’s preferred measure of inflation.”

Yet the Bank’s own pension rules call for payments to be linked to the retail prices index.

“As most pension schemes in Europe are organised by the state, European ministers of finance have a facilitated access to the savings accumulated there, and it is only logical that they try to get a hold of this money for their own ends. In recent weeks I have noted five such attempts: Three situations concern private personal savings; two others refer to national funds.”

Spain is among the world leaders in C-sections, the result of a long tradition of programming baby births instead of letting nature run its course. So when Madrid’s government announced earlier this year that it would withdraw a €2,500 “cheque bebe” subsidy for new births as of January 1, suspicions of an induced baby boom arose all over.

However, no signs of a late-December rush to maternity wards have been seen. Which really is good news, because a fake baby boom wouldn’t help to lift the low fertility rates wreaking havoc in the economy of Spain and other Southern European countries.

In a country where about 25% of births are C-sections, above the World Health Organization’s recommended 10%-15%, local media has been eager to find evidence of quick births for cash. Several doctors are cited expressing rejection for express C-sections, and no one appears willing to work extra at this time of the year, with extra dangers for newborns, only so that somebody else gets €2,500.

The latest bit of good news for BT’s pension fund should cause some cheer at the company whose obligations’ mill-stone dwarfs its market capitalization. Though there’s likely to be anger among the company’s pensioners, who thanks to new government rules, will find fewer pennies in their paybooks each month.

But while a switch to CPI from RPI linked pension payments is a £3 billion step in the right direction for BT’s pension deficit, it doesn’t make much short-term difference. The company will still have to cough up the £525 million for this year and next that it has already agreed with the pension regulator. After that the future is just as murky as it was yesterday.

Here in the U.K., and perhaps elsewhere too, we are in danger of breaking the unwritten contract we have with key public-sector workers: the nurses, teachers, police officers and others who perform essential tasks, often for very little money.

At the heart of this contract is an understanding that because they contribute so much to society, generally for much less money than those of us working in the private sector, we will look after them in their old age by providing them with generous pensions.

Think about it. If you have a good degree in science, for example, or mathematics, you could probably find a well-paid job with a pharmaceutical company, or even a bank. Or you could choose instead to pass on your knowledge by becoming a teacher, knowing your income will be lower.

If you choose the latter then we -– society -– should be grateful, and reward you accordingly by making sure you have a comfortable retirement.